New Norms For Branch Offices By Foreign Entities

According to Reserve Bank of India, an application from a person resident outside India for opening of a branch office / liaison office / project office in India will require its prior approval in cases where the principal business of the applicant is in one the four sectors — Defence, Telecom, Private Security and Information and Broadcasting.

Further, the central bank approval will be required in cases where the applicant is a citizen of or is registered/incorporated in Pakistan; the applicant is a citizen of or is registered/ incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the application is for opening a BO/LO/PO in Jammu and Kashmir, North East region and Andaman and Nicobar Islands; and the applicant is a Non-Government Organisation (NGO), a Non-Profit Organisation, or a Body/ Agency/ Department of a foreign government.

In the case of proposal for opening a project office relating to defence sector, no separate reference or approval of Government of India will be required if the said non-resident applicant has been awarded a contract by/ entered into an agreement with Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings. There will be no requirement of any approval from RBI also only for such cases.

Applications from persons resident outside India for establishing Branch Office (BO) / Liaison Office (LO)/ Project Office (PO) or any other place of business in India will be considered by the bank authorized to deal in foreign exchange (AD Category-I bank) as per the guidelines issued by the Reserve Bank of India.

According to the RBI, the non-resident entity desirous of establishing a BO/LO in India should have a financially sound track record.

An applicant that is not financially sound and is a subsidiary of another company may submit a Letter of Comfort (LOC) from its parent/ group company, subject to the condition that the parent/ group company satisfies the prescribed criteria for net worth and profit. The LOC should be issued by the applicant’s parent / group company which undertakes to fund the operations if required.

The AD Category-I bank will, after exercising due diligence in respect of the applicant’s background, and satisfying itself as regards adherence to the eligibility criteria for establishing BO/LO/PO, antecedents of the promoter, nature and location of activity of the applicant, sources of funds, etc., and compliance with the extant KYC (know your customer) norms, grant approval to the foreign entity for establishing BO/LO/PO in India.

The AD Category-I banks may frame appropriate policy for dealing with these applications in conformity with the FEMA (Foreign Exchange Management Act) Regulations and Directions.